Can Bankruptcy Help You Eliminate Tax Debt in Tennessee?
Bankruptcy is a legal process that allows individuals to eliminate or repay their debts under the protection of the federal bankruptcy court. One of the most significant concerns for many people contemplating bankruptcy is whether it can help eliminate tax debt. In Tennessee, as in other states, understanding the nuances between different types of taxes and bankruptcy is crucial.
The two primary forms of bankruptcy available to individuals are Chapter 7 and Chapter 13 bankruptcy. Each has distinct rules regarding tax debt and its dischargeability.
Chapter 7 Bankruptcy and Tax Debt
Chapter 7 bankruptcy, often referred to as liquidation bankruptcy, allows individuals to discharge most unsecured debts, including credit card debts and medical bills. However, tax debts are treated differently. In Tennessee, to discharge income tax debt through Chapter 7, certain conditions must be met:
- The tax return must have been filed for at least two years before filing for bankruptcy.
- The taxes owed must be from a return due at least three years prior to the filing date.
- The tax assessment must have been made at least 240 days before the bankruptcy filing.
- The taxpayer must not be guilty of tax evasion or fraud.
If all these criteria are met, Chapter 7 bankruptcy can effectively eliminate certain types of tax debt, providing significant relief to individuals burdened with federal or state taxes.
Chapter 13 Bankruptcy and Tax Debt
Chapter 13 bankruptcy offers a different approach, allowing individuals to reorganize their debt and create a payment plan to pay off creditors over three to five years. This option can be particularly beneficial for those looking to manage tax debt. Unlike Chapter 7, Chapter 13 bankruptcy doesn’t necessarily discharge tax debts; instead, it allows individuals to pay off tax debts through the payment plan.
To qualify for payment under Chapter 13, the same conditions that apply to Chapter 7 concerning eligibility for discharge can often lead to the inclusion of tax debts within the repayment plan. This means individuals can spread out payments over a manageable period, preventing overwhelming financial strain.
Other Considerations
Additionally, it’s crucial to note that tax liens can complicate bankruptcy cases. If the IRS has filed a lien on your property, that lien typically remains even after bankruptcy unless it is addressed directly in the bankruptcy process.
To better understand how bankruptcy may affect your tax situation, consulting with a qualified bankruptcy attorney in Tennessee is essential. They can provide personalized advice based on your financial circumstances and help guide you through the bankruptcy process.
Conclusion
In summary, declaring bankruptcy in Tennessee can potentially help eliminate or manage tax debt, depending on the type of bankruptcy filed and the eligibility of the specific tax debts involved. Whether through Chapter 7 or Chapter 13, individuals facing overwhelming tax liabilities should explore these options to regain their financial footing.